Sunday, June 17, 2012

How to Be Much Smarter Than Your Dumbest Competitor: Warren Buffett, Commodities, and Translation

On two occasions in which this blog has expanded on Chris Durban’s thesis that translation is not a commodity product, readers have chipped in with analogies from commodity markets. One reader, Rob, brought up the example of chocolate in one comment. Another frequent reader, Gueibor, contributed to the comments by discussing the example of Kobe beef on the meat market. As my readers point out, even these markets tend to break down along relatively complex spectrums. However, to be more precise, when the commodity analogy is invoked, economists generally assume that within the different niches in an overall commodity market, differences within the niche itself are not decisive and the product is undifferentiated. For example, Saudi and Texan crude is much lighter than Venezuelan crude, but within the reduced “light sweet crude” category, a refiner doesn’t care whether he is processing Texan or Saudi crude. And after light and heavy crudes are refined to make, say, diesel, the purchasing manager for a chain of gas stations doesn’t care whether the final product comes from this company or that company. He will only care about the price, since the different products will pretty much function just as well.

The problem with the chocolate or meat analogies is that they take for granted the proposition that is being critiqued. Chiefly, that translation is a commodity. The interesting thing is that even in businesses that are pretty ostensibly commodity businesses, value resides in differentiation.

In general, any player who resigns himself to the idea that he produces a commodity is condemned to compete solely on price. And he will also be condemned to charging very low prices and generating very thin margins. When very unimaginative people run across this criticism, they generally reply with the world-weary wisdom of the businessman that this is how “capitalism” or “reality” works and that anyone who believes the contrary is a doped-up hippie.

Now, I think we can pretty much agree that Warren Buffett is a successful capitalist, perhaps the most successful capitalist of all time. He tends to trade places with Bill Gates and Carlos Slim every year in the competition to see who the richest man in the world is. I think he is far more interesting that the other two. Buffett outshines the other two because he is an interesting thinker and also an excellent writer. He is also a lower-case “t” tech skeptic. All throughout the nineties Internet bubble, Buffett was making little jibes about and everybody dismissed him as an anachronism of the “Old Economy.” Yet the successive investment bubbles of the past fifteen years have popped and Berkshire Hathaway is still there, making money for its shareholders while a lot of very bad online investment ideas fell by the wayside.

Buffett has devoted a lot of thinking to the task of identifying a good business. Listen to this little nugget of wisdom from the Sage of Omaha, from a recent compilation of his writings on business: “In a business selling a commodity-type product, it’s impossible to be a lot smarter than your dumbest competitor.”

Buffett, as many know, did not build a fortune by creating businesses from scratch. He made it by buying already successful businesses and making them even more successful. One of the tenets of his philosophy is to shy away from businesses that manufacture commodity products and have low barriers to entry. The previous two characteristics also mean that these industries are subject to fierce competition. What would Buffett say if he heard David Grunwald, the owner of a machine translation company, state the following?:
But I still maintain that translation is a commodity. If there are 10,000 professional English to Spanish translators in the world that are native Spanish speakers, that have a CAT tool, and are subject-matter experts, then one translator is easily replaceable with another. The price for this service is set and is within a specific, well-defined range. And that makes it a commodity. Commodities, like pork bellies, gold and corn are traded in the same manner. And just like in translation, prices go up or down based on availability and demand.
(I once took a course on Saint Thomas Aquinas in which the lecturer discussed a two-paragraph quaestio for several months. I could blog for several months just on this paragraph alone.) Note how Grunwald unconsciously conflates the entire English-Spanish market to the profiles on ProZ. That in itself is very telling. The problem is that his pool of potential translators is not really the 10,000 Spanish profiles on ProZ. It is actually much, much smaller. Grunwald’s pool of potential collaborators is actually people who have profiles on ProZ and look for work by bidding on ProZ projects. If I were Grunwald, I would find it hard to sleep at night. From his constant bitching about translators recruited over ProZ, I suspect he does suffer from a touch of insomnia. Listen to this:
One of the bad things about ProZ is that since basic membership is free, and since no credentials of any kind are required to join, it attracts many incompetent and unreliable translators. An outsourcer can easily get burned on ProZ.
Any person (or animal for that matter, if they can work the Internet) can sign up to and claim they are an expert translator or translation vendor. This means that the job poster needs to perform extensive due diligence before selecting the translator/vendor; and even then I can tell you from my own experience that you can get burned with poor quality and/or missed deadlines. And what recourse do you have? Zilch. You may get an apology from but nothing more.
All in all, Grunwald’s tone is pretty critical. (I have nothing personal against him and I hope he doesn’t take any of this personally. He has said very generous things about my blog and I confess I find his blog interesting, albeit in the same way you find those Fox shows about animals attacking human beings impossible to not watch.)

Translators who accept a project and never turn in anything? Really? How frequent is that? If that happened to me even once, I would seriously seek another way to recruit my translators, preferably offline. Why would an entrepreneur persist in using this unreliable channel? Answer: because he targets the low-rate area of the industry. Why not pay translators more? Or at least invest in a more careful method of recruitment that requires a higher investment in terms of time and money than the ProZ membership fee? The answer, I suspect, is that the “market” is too competitive and that snooty translators who demand higher rates are living in Cloud Cuckoo Land. To which my response would be: live by the sword, get ready to have your ribcage tickled by a sword once in a while.

Buffett would say that the business philosophy condensed in the quotes above would be rational if the product is indeed a commodity. However, he would also 1) not invest in a business like this, or, 2) if forced to invest in it, he would try to find some avenue for differentiation. (He would also, perhaps, express some surprise that a service is being described as a commodity.) If it isn’t a commodity but you are treating it as if it is a commodity, you are mistakenly condemning yourself to being little more than a roach motel landlord.

In response, the MT Crowd would slap a thick layer of l10n mumbo-jumbo on Buffett, crammed with catchphrases like “crowdsourcing” and “disruptiveness.” I imagine he would chuckle his little Buffett chuckle and go about his business while the cheap providers fight over the meager scraps of the multilingual Web 2.0. And he would be right. Because if technology-driven translation is a commodity service, then you are wasting your time by going to l10n conferences and making polite little comments insinuating to your competitors that they are idiots barking up the wrong engineering tree.

Because if you want to be the King of Cheap Translation, the only road for you is monopoly with a capital “M.” Your only strategy is to get big fast, charge as little as possible, and then buy out all your competitors or drive them out of business by any means, fair or foul. You basically have a to buy a biography of John J. Rockefeller and then hire some mean-looking guys from the ´hood to leave boiling rabbits in your holdouts’ kitchens or hide in bowls of rice in case Butch goes to Indochina. (Incidentally, in commodity markets, technological superiority is irrelevant. Size matters, big time. The biggest competitor, even using worse technology, ends up winning, so it won't be the quality of your R&D and your engineering nerds that will help you win that race.)

Miguel Llorens is a freelance financial translator based in Madrid who works from Spanish into English. He is specialized in equity research, economics, accounting, and investment strategy. He has worked as a translator for Goldman Sachs, the US Government's Open Source Center, and H.B.O. International, as well as many small-and-medium-sized brokerages and asset management companies operating in SpainTo contact him, visit his website and write to the address listed there. Feel free to join his LinkedIn network or to follow him on Twitter.


Gueibor said...

"..frequent reader Gueibor..."
Woo hoo, I'm innuhnetz famous!!

(Sorry about that, I'm sorry, won't happen again, I promise)

Mr. Grunwald seems like a good sport, whatever his views on this industry. He shouldn't be wasting time on Proz - maybe that would lift his spirits.

From the comments on his blog, I can't help noticing how Proz seems to keep letting everybody down no matter how hard they try. To outsourcers, they're "anti-agency and pro-translator", and to translators - what can I possibly ad to the miles of diatribes already written?

It saddens me a bit - I'm not a Proz hater. I found the site enormously useful when I was getting started, but I'm afraid "getting started" is pretty much where its upper limit of usefulness is located. Once you've built the tiniest customer base, it becomes more of an annoyance than anything else if you've bought into the notion that you can get real actual work out of your membership.

I've since gone back to the free version and I've yet to notice the difference. If I'm anywhere near a typical case, that can't be good from Proz's viewpoint.

Kevin Hendzel said...

While I think all accomplished professional translators would emphatically agree that translation is not a commodity, can we please drop the term “non-commodity?” There is a cost in using it. For example, I find the title of Chris’ ATA publication, Translation: Standards for Buying a Non-Commodity to be worrisome and very likely counterproductive, in the sense that the two ideas any reader will come away with after reading that title are surely “translation” and “commodity.” The reason, of course, is that the term “non-commodity” has a vanishingly small frequency in the common English lexicon, particularly compared to a high-frequency term like “commodity.” The human mind, as we all know, is very stubborn and intransigent about recognizing the familiar – often in a flash, and quite intuitively – and rejecting the unfamiliar, meaning that clients, potential clients and the public will simply never even see that “non-” part.

What they will see is “translation” + “commodity.”

So let’s stop that (and change the title). I think Chris would agree with me on that.

[Note to self – don’t grumble about how ATA missed the boat on a LANGUAGE issue large enough to accommodate a nuclear aircraft carrier with enough open sea on both sides to easily fit two dozen Iranian fast attack boats. Yikes!]

Anyway, I’m of mixed minds on what to say about invoking Buffet and Berkshire to challenge or invalidate or humiliate the commodity model, as much as it deserves deep humiliation, as you so rightly note. On the one hand, Berkshire currently holds in its portfolio such companies as Walmart, Dollar General and Costco, which are the ultimate in price-driven discount retailing wrought large. If there were any companies in retailing that shared deep conceptual and philosophical roots with the MT-centric, technology-infatuated and hysterical price-driven crowd in the translation market, surely these three companies would be at the very top.

And Warren Buffet owns them.

On the other hand, they surely collectively constitute one mean effective monopoly.

So perhaps what Buffet would advise is to avoid commodity companies unless you can ruthlessly strangle competition by beating the hell out of them through aggressive pricing, position leveraging and stringent cost-control via massive volume purchases from deep offshore sources.

Yes, now that sounds familiar. Even in our industry.

Verbe said...

Why should we drop that word? Quite the contrary. The negative prefix "non" takes the shortest time to process because of perceptual proximity.

And Kevin's argument about the average reader shows a serious disrespect of anyone's capacity for thinking - it's pretty much the same as saying that since "non-finite" is all too similar to "finite", students should henceforth not be taught the "problematic" word with the negative prefix - it should be replaced by a new one with a more marketable ring to it that'll stick. Chapeau! It does take an enterprising spirit to do away with the usefulness of the negative prefix in the English language with a stroke of a pen, as even the dumbest among us know that the prefix non- is used to create a word that describes the complete opposite of its non-negative form. In other words, a non-conformist is someone who absolutely does not conform. Uncomformist and inconformist wouldn’t have the same sense. By what other name should one call a non-word? Or a non-integer? I am sorry, but I will not take seriously any argument that begins with rubbish, however well worded it may be.

Kevin Hendzel said...

Ask yourself this: What is the purpose of the text?

If it’s a technical text on the physics of high-temperature superconductivity, for example, you’ll get no argument from me on “non-integer” or non-anything in a quantitative sense, so I agree with you here. I translated a journal in this field for well over a decade, and the target audience there was leading-edge research scientists. There are fewer things that drive me more insane than somebody suggesting that a translation cannot be right or wrong, in the manner of a bank statement.

On whether people who claim such things get called on it, we’ll see. There’s a conference going on in Paris right now where the author of a popular book on translation who claimed such nonsense is about to get called on it, and in public.

Anyway, the purpose of the ATA document on translation being a “non-commodity” is to persuade and encourage the reader – a member of the public – to consider the proposition that translation is not a commodity. The process of persuasion is in many ways an art form – the fact that it cannot be reasonably quantified does not invalidate this reality – and in any process of persuasion that relates to a person’s place in the world, you must deal with the mechanisms people use to make sense out of the world.

Our brains make sense out of the world by deploying a massive, sophisticated and interlinked cognitive filtering network that runs constantly in the foreground of our sentient reality (what we call “ourselves” actually runs in the background). The best way to penetrate this network with your message about something not being a commodity is to hop on the back of words and ideas and concepts that the reader recognizes and ride those through the network and into the conscious mind.

In this scenario, you are best served by focusing on what the reader recognizes – the frequency of the terms in the common lexicon – and that carry the most force in that reader’s mind. If you don’t choose wisely here, each person’s cognitive network will overrule you, pick and pluck the meaning that the reader wants from the words you are using.

So this will backfire every time.

For example, when you called my original message “well worded,” (thanks!) you really weren’t talking about the individual words, or even how they fit together. You were talking about the collective impact of the ideas those words represented on you and your own version of that cognitive network.

I’ve spent a great deal of my adult life speaking to non-translators (the public) about translation. For the last 12 years I was ATA's national media spokesman, and in that capacity spoke to 200+ million people. I learned long ago that any public outreach on this subject that has any hope of success must rest on the bedrock of the mind of the people you are talking to. The fastest way to cause non-translators to nod off and fall into a deep slumber – or to click away, or look over your shoulder, or check their watch or otherwise try to get the hell away from you – is to talk like a translator.

Chris Durban said...

I'm up against a deadline so won't get into this conversation right now except to say that the *French* title of the brochure Kevin mentions is a lot better than the English.
It reads "Les mots au kilo ?"
That's "Words by the kilo?" (note the question mark).
Has a nice swing (mots-au-ki-lo, get it?).
Since the non-commodity argument is made in the opening paragraphs of the brochure itself (and reasonably well, I think), I agree with Kevin (for the reasons he explains) that we really should be looking for a new title.
Since there hasn't been a print run, we can make the change easily.
Suggestions, anyone?
(Miguel, sorry, will get back to comment on the content of your post once the crunch is off)

Anonymous said...

one itsy bitsy boring comment: in Proz the wheat can be separated from the chaff by selecting from among Certified members.

Elizabeth Hill
Ata Certified It – En Translator
Legal, Financial, Archaeology, Oenology
Proz. Com Certified

Cassy said...

Either translation is a commodity or not,still it gives me a very good living. Translation is an intellect with passion.